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Investment Solutions & Products
Swiss Economics
Trend reversal in
housing market
Real Estate Monitor Switzerland | September 2021
Housing market Construction economy Owner-occupied housing
Surprisingly strong decline Recovery apparent Price momentum
in housing vacancies despite obstacles accelerates once again
Page 5 Page 8 Page 10
Imprint Publisher: Credit Suisse AG, Investment Solutions & Products Nannette Hechler-Fayd’herbe Head of Global Economics & Research +41 44 333 17 06 nannette.hechler-fayd'herbe@credit-suisse.com Fredy Hasenmaile Head of Real Estate Economics +41 44 333 89 17 fredy.hasenmaile@credit-suisse.com Copy deadline September 23, 2021 Publication series Swiss Issues Immobilien Visit our website at www.credit-suisse.com/realestatestudy Copyright The publication may be quoted providing that it is cited as the source. Copyright © 2021 Credit Suisse Group AG and/or its affiliated companies. All rights reserved. Source details Other than where differently attributed, the source of the information is: Credit Suisse Authors Fredy Hasenmaile, +41 44 333 89 17, fredy.hasenmaile@credit-suisse.com Thomas Rieder, +41 332 09 72, thomas.rieder@credit-suisse.com Dr. Fabian Waltert, +41 44 333 25 57, fabian.waltert@credit-suisse.com Contribution Fabian Diergardt Thomas Mendelin 2 Real Estate Monitor | Q3 2021
Management summary
Monitoring the effects of
coronavirus
The Swiss apartment market is generally viewed as inert – more critical observers would
describe it as boring. But the coronavirus pandemic has well and truly shaken up this
key segment of the real estate market. In addition to a trend reversal in vacancy rates,
there is also evidence of interesting shifts in demand in the housing market.
Housing vacancy The imminence of a trend reversal in the number of vacant apartments in Switzerland has recently
rates experience become apparent to attentive market observers. For some time now, the volume of planning appli-
trend reversal cations in the area of rental apartment construction has been losing momentum, reflecting not just
greater reticence on the part of investors but also a paucity of available land on which to build.
Nonetheless, the magnitude of the trend reversal is a surprise.
The pandemic and its This surprising result is likely to be first and foremost attributable to the pandemic. On the one
special effects hand, the coronavirus crisis had the effect of increasing net migration (including movements by the
Swiss) by more than 13,000 persons last year, above all because many people thinking of moving
abroad decided to stay put given Switzerland’s relatively stable labor market situation. But the sup-
ply side too is likely to have contributed significantly to the sharp fall in the number of vacancies.
For example, the pandemic protection measures and various building material shortages are likely
to have led to delays in the completion of some housing projects.
Interesting shifts in The appeal of Switzerland’s major urban centers has suffered disproportionately from pan-
demand in the demic-related restrictions. It is thus not surprising that fewer households than usual have decided
housing market to move to a major center. Some of these are probably just postponing this decision until life in the
city has once again fully normalized. However, many households believe that much of the “new
normal” will remain as a result of the pandemic – such as greater freedom to work from home –
and have therefore turned their backs on the city for good in the last year. In addition, there has
also been greater residential mobility within urban centers. Many households appear to have used
this time to optimize their housing situation by moving elsewhere in the city, or indeed by giving up
their pied-à-terre. This also might explain why apartment supply rates have risen further, most no-
tably in the urban centers, whereas the time on market of vacant apartments has remain un-
changed or even fallen.
Construction The coronavirus pandemic has also left its mark on the construction economy. That said, this sec-
economy on recovery tor has managed to keep the damage inflicted by the crisis within limits, and is now on the road to
trajectory, … recovery. Although building activity is not yet back to pre-crisis levels, the current trend provides
grounds for optimism. In particular, the upward trend looks set to continue in residential and com-
mercial construction thanks to strong order pipelines. In the medium term, however, the volume of
building permit issuance indicates few stimuli for building construction. For the last three years or
so, there has been a decline in rental apartment newbuild activity, and this trend looks set to even
intensify in the coming months. On the other hand, other areas of the construction economy –
such as hospital and data center construction, as well as the growing conversion and refurbish-
ment area – should act as a counterweight, keeping building construction volumes fairly stable.
… but still faces In addition to the decline in planning activity in the apartment construction area, the scarcity of cer-
challenges tain key building materials is the major current risk factor for the construction economy. Bottle-
necks in global supply chains have resulted in a shortage of building materials and are reflected in
rising construction prices and the risk of delays. Building companies therefore find themselves
confronted by the challenge of having to pass on additional costs to their clients, despite fierce
competition, in order to prevent erosion of what are already low profit margins.
Real Estate Monitor | Q3 2021 3Content Management summary 3 Monitoring the effects of coronavirus The Swiss apartment market is generally viewed as inert – more critical observers would describe it as boring. But the coronavirus pandemic has well and truly shaken up this key segment of the real estate market. In addition to a trend reversal in vacancy rates, there is also evidence of interesting shifts in demand in the housing market. Housing market 5 Surprisingly strong decline in housing vacancies The housing vacancy rate has declined from 1.72% to 1.54% this year. This is due to astonishingly robust demand for apartments and a decline in building activity, the latter having probably been accentuated by COVID-19. Pandemic-related effects have led to a decline in vacancies, above all outside of the urban centers and for larger dwellings. Construction economy 8 Recovery trend apparent despite obstacles The construction economy has managed to keep the damage inflicted by the coronavirus crisis within limits, and is now on the road to recovery. However, there is now evidence of an increasing shortage of certain key building materials, which could threaten the recovery – at least in the short term. Owner-occupied housing 10 Rental apartments 11 Commercial real estate 12 Real estate investments 13 4 Real Estate Monitor | Q3 2021
Housing market
Surprisingly strong decline in
housing vacancies
The housing vacancy rate has declined from 1.72% to 1.54% this year. This is due to
astonishingly robust demand for apartments and a decline in building activity, the latter
having probably been accentuated by COVID-19. Pandemic-related effects have led to a
decline in vacancies, above all outside of the urban centers and for larger dwellings.
Vacant apartments The number of vacant apartments in Switzerland as recorded by the Swiss Federal Statistical Of-
decline by some fice (SFSO) has declined this year for the first time since 2009. As of June 1, 2021, there were
7,500 units just 71,365 vacant apartments across Switzerland, equating to a vacancy rate of 1.54% (Fig. 1).
In other words, the Swiss housing market has experienced a trend reversal – even if the vacancy
rate remains above its long-term average (1.11%). This phenomenon has occurred recently be-
cause demand has hardly been affected by the pandemic, whereas the construction of apartments
has slowed further. Nonetheless, the extent of the decline in the number of empty dwellings
(–7,467) is a surprise.
Decline in building A major factor in the fall in vacancies has been the development of construction activity, with the
activity … high level of apartment construction activity in previous years having resulted in a decoupling from
tenant demand. A combination of the quest for yield and the paucity of available building land led
some investors to turn their attention to peripheral municipalities and rural regions, including those
where potential demand is limited. However, the construction of rental apartments has now
passed its peak. For the last three years or so, building permit issuance has been exhibiting a de-
clining trend, which despite a temporary counter-movement looks set to persist this year (cf. p.
11). Overall, 5% fewer rental apartments were approved for construction over the last two years
compared to the preceding two years.
… further In fact, the number of newly built apartments is likely to have declined even more strongly than
exacerbated by construction approval figures suggest. On the one hand, coronavirus measures and supply short-
coronavirus effects ages of key building materials have led to a number of delays on building sites. For example, ac-
cording to statistics produced by the Swiss Contractors’ Association, this resulted in a 16.3% de-
cline in residential construction sales in 2020 (cf. p. 8). On the other hand, a growing proportion
of residential construction projects – particularly in the major centers – are replacement newbuilds.
In other words, only a very few additional apartments come onto the market when these projects
complete. Furthermore, a number of major residential construction projects, primarily in urban ar-
eas, have recently been suspended by legal disputes relating to noise pollution.
Fig. 1: Trend reversal after 11-year rise in vacancies Fig. 2: Fewer vacant apartments in all segments
Change in vacancies and vacancy rate (VR); as per June 1 in each case Apartment vacancy rate by segment, as % of respective housing stock
Change in vacancies (rhs) Rental apartments Condominiums
2.0% Vacancy rate (VR) 16’000
Average VR (1974–2021) Single-family homes (for sale) Vacancy rate total
3.0%
1.5% 12’000
2.5%
1.0% 8’000
2.0%
0.5% 4’000
1.5%
0.0% 0 1.0%
-0.5% -4’000 0.5%
-1.0% -8’000 0.0%
1988 1992 1996 2000 2004 2008 2012 2016 2020 2003 2005 2007 2009 2011 2013 2015 2017 2019 2021
Source: Swiss Federal Statistical Office, Credit Suisse Last data point: 01.06.21 Source: Swiss Federal Statistical Office, Credit Suisse Last data point: 01.06.21
Real Estate Monitor | Q3 2021 5Housing demand not At the same time, demand has not been tied back by the pandemic. Indeed, net immigration in
tied back by the 2020 actually increased in a year-on-year comparison (from 53,200 to 66,500, including Swiss
pandemice citizens), because the number of people leaving Switzerland fell more strongly than the number of
immigrants. Only the net number of short-term residents (not taken into account in the above fig-
ures) recorded a sharp decline. Thanks to the economic recovery this year, the number of immi-
grants is once again on the rise; hence net migration in 2021 can once again be expected to be
higher than before the pandemic (cf. p. 11), albeit without quite reaching the high figure of 2020.
In addition, domestic demand likewise appears to have suffered under coronavirus only slightly at
the start of the pandemic, when uncertainty was running high. Thanks to short-time working and
fiscal support for companies, the pandemic barely had any negative impact on the purchasing
power of many households. Indeed, many households were even able to increase their savings
thanks to reduced spending on mobility, gastronomy, and leisure. Furthermore, the increased use
of home working triggered a rise in demand for living space (see below).
5,500 fewer vacant A significant portion of the decline in the number of empty apartments (equivalent to 5,500 units)
rental apartments was recorded in the rental apartment segment. Nonetheless, the rental apartment vacancy rate
remains high in a long-term comparison at 2.49% (Fig. 2). This is explained by the fact that devel-
opers focused on investment properties for many years, and ever fewer new single-family homes
and condominiums came onto the market (cf. p. 10).
Property to buy in In contrast to the rental apartment market, the market for owner-occupied housing has faced
short supply problems with scarcity of supply for years. Although the high level of prices and more rigorous reg-
ulatory requirements for the granting of mortgages have reduced the pool of potential first-time
buyers, there has nonetheless been an increase in demand for residential property in recent quar-
ters. The majority of people spent a great deal more time at home during the pandemic. In many
cases, this will have strengthened the desire to possess one’s own four walls. Moreover, the shift
toward greater home working has increased the willingness of potential buyers to look for homes
further away from their place of work. And with this greater search radius has come an increase in
the chance of finding a suitable property that meets the household budget. A combination of
higher demand and declining production has fed through into rising prices in the owner-occupied
housing area (Q2 2021: +6.6% YoY). At the same time, vacancies have declined by 16% (1,900
apartments); in both the single-family home and condominium sub-segments, the vacancy rate
now stands at just under 0.5% (Fig. 2).
Shift in demand A further consequence of the coronavirus crisis is the shift in demand toward larger apartments.
toward larger Many a household is likely to have added an additional room to their property search with a future
apartments home office in mind. And this trend is reflected in the structure of vacancies (Fig. 3), which are
now more in evidence for smaller apartments than for those with three or more rooms. However,
this is not just the result of the pandemic and the associated change in living requirements. Con-
struction activity has been heavily geared around smaller apartments for a number of years now,
and this is now clearly reflected in vacancy figures.
Fig. 3: Apartments with three or more rooms in greater demand Fig. 4: Slight narrowing of urban-rural divide
Housing vacancies by number of rooms, 2020 and 2021 Development of vacancy rate (VR) in the large centers and other municipalities
2021 Zurich Bern
-16.7%
6+ Basel Geneva
2020 4,000 Lausanne VR, large centers (lhs)
2.4%
-20.7% VR, other (rhs)
5 3,500 2.1%
-16.5% 3,000 1.8%
4
2,500 1.5%
-7.8% 2,000 1.2%
3
1,500 0.9%
2 -0.7%
1,000 0.6%
1 + 9.2% 500 0.3%
0 0.0%
0 5,000 10,000 15,000 20,000 25,000 30,000 2000 2003 2006 2009 2012 2015 2018 2021
Source: Swiss Federal Statistical Office, Credit Suisse Last data point: 01.06.21 Source: Swiss Federal Statistical Office, Credit Suisse Last data point: 01.06.21
Easing of supply Contrary to the general Swiss trend, apartment vacancy figures have increased sharply in the ma-
tensions in large jor urban centers (+17.3%). The largest rise of all was recorded by Lausanne (+50.5%), with only
centers the city of Bern exhibiting a slight fall in its apartment vacancy rate (–6.5%). Overall, the vacancy
6 Real Estate Monitor | Q3 2021rate of the large centers rose from 0.47% to 0.55% (Fig. 4). The city of Zurich continues to have
by far the lowest vacancy rate (0.17%), whereas apartment-seekers are likely to have a rather
easier time of it in the city of Basel (1.10%). The easing of supply tensions in the large centers is
probably also partly the result of a recent increase in construction activity in the cities. However,
coronavirus played an important role too: At the height of the pandemic, urban cultural and leisure
offerings were greatly restricted, and the benefits of proximity to the workplace lost their signifi-
cance due to the widespread shift to home working. As a result, the city lost its relative appeal
compared to the country. This is also strikingly apparent in domestic migration movements: A net
14,200 people left the large centers in 2020 – 77% more than in 2019.
Sharp vacancy rate Viewed regionally, there are still four clusters exhibiting significant vacancy levels: northeastern
decline in tourist and Switzerland, northwestern Switzerland (notably Aargau and Solothurn), Valais, and Ticino (Fig. 5).
periurban regions The easing of supply tensions in Switzerland’s urban centers described above is largely limited to
the large centers. In the medium-sized centers, by contrast, the vacancy rate has declined slightly
from 2.03% to 1.98%. A clear majority of Switzerland’s economic regions (68 out of 110) rec-
orded a vacancy rate decline. In particular in periurban municipalities further outside the cities, sig-
nificantly lower vacancy rates were recorded overall (–19.4%). But in many rural-peripheral re-
gions too, fewer apartments were vacant on June 1, 2021 than a year earlier. In Alpine municipal-
ities with a strong tourist industry, the decline in the number of vacant apartments declined by as
much as 25.2%.
Conclusion: Has The turning point in the vacancy rate trend has therefore occurred earlier and proved more pro-
coronavirus been a nounced than expected. Once again, the coronavirus pandemic has acted as a trend accelerator,
trend accelerator – accentuating the anticipated decline in residential construction and stimulating demand for accom-
or even a “game modation. That said, the decline in the vacancy rate is unlikely to continue at its current tempo.
changer”? Although there is evidence of a declining trend in the volume of planning applications being sub-
mitted, the order books of construction companies remain well-filled, and construction activity
could rise again in the meantime once pandemic-related production restrictions are removed fully.
Furthermore, residential property remains coveted by investors, particularly as there is no sign of
the low interest rate environment changing any time soon. The extent to which the pandemic
could even prove a “game changer” remains to be seen. This would require the recently observed
trend toward larger apartments to endure outside of the large centers. However, there are plenty
of reasons to suggest that this structural trend could weaken once again against the backdrop of
a widespread return to the office and the removal of pandemic-related restrictions.
Fig. 5: Fewer housing vacancies in many agglomeration municipalities and rural regions
Vacancy rate as per June 1, 2021, arrow: year-on-year change
> 3.0%
2.5 – 3.0%
2.0 – 2.5%
1.5 – 2.0%
1.25 – 1.5%
1.0 – 1.25%
0.75 – 1.0%
< 0.75%
Sharp increase
Slight increase
Sideways movement
Slight decrease
Sharp decrease
Source: Swiss Federal Statistical Office, Credit Suisse Last data point: 01.06.2021
Real Estate Monitor | Q3 2021 7Construction economy
Recovery trend apparent
despite obstacles
The construction economy has managed to keep the damage inflicted by the
coronavirus crisis within limits, and is now on the road to recovery. However, there is
now evidence of an increasing shortage of certain key building materials, which could
threaten the recovery – at least in the short term.
Storm weathered The construction sector has weathered the coronavirus storm relatively well. Unlike other sectors,
relatively well it was affected only for a limited period and in certain places by building disruptions (building site
closures in the first semester of 2020 in Ticino and a few regions of French-speaking Switzer-
land). Nonetheless, the pandemic has not passed the construction economy by: A combination of
coronavirus containment measures and presumably a certain degree of uncertainty on the part of
developers led to productivity declines and a sales decline of 5.8% in the main construction trade
in 2020. According to the quarterly statistics of the Swiss Association of Master Builders, residen-
tial construction sales fell by as much as 16.3%.
Well-filled pipelines Although building activity is not yet back to pre-crisis levels, the current trend provides grounds for
optimism. For the third quarter of 2021, we are expecting a sales increase of 5.7% year-on-year
in the main construction trade (Fig. 6). The recovery is likely to persist in residential and commer-
cial construction in particular (+11.1% and +13.5% respectively). Both segments are currently
exhibiting well-filled order books – among other things, because a backlog is likely to have built up
as a result of restrictions and productivity slumps during the pandemic.
Decline in rental In the medium term, however, the volume of building permit issuance promises few stimuli for
apartment building construction. Although approved construction volumes have stabilized recently, the level of
construction building permit issuance over the last 12 months was 6.4% below the average of the previous six
increasingly apparent years (Fig. 7). The key driver of this decline is the level of newbuild activity for rental apartments in
multi-family dwellings, which has exhibited a declining trend for some three years now (cf. also
p. 11). It is estimated that rental apartment construction has accounted for around a quarter of all
sales in the main construction trade over the last decade. On the other hand, in the longer term
there are grounds for optimism thanks to the latest rise in newly submitted planning applications,
which brought the most recent projections for construction volumes back into line with the average
of the last five years. However, this increase is not down to activity in the residential segment, but
relates to other areas of building construction (e.g. hospital and other public building construction,
data center construction), as well as to conversion and refurbishment projects.
Fig. 6: Building economy picks up steam once again Fig. 7: Planning activity in building construction has picked up re-
cently
Forecast sales development in main construction trade, nominal; index: Q1 1996 = Planned building construction volumes in CHF mn, moving 12-month total
100
160 60,000
150
50,000
140
40,000
130
30,000
120
110 20,000
Building construction projects (applications)
100 Applications: average since 2015
10,000 Building construction projects (permits)
Permits: average since 2015
90
0
2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 1995 1998 2001 2004 2007 2010 2013 2016 2019
Source: Credit Suisse, Swiss Contractors’ Association Last data point: Q2/2021 Source: Baublatt, Credit Suisse Last data point: 06/2021
8 Real Estate Monitor | Q3 2021Conversion and Over the last ten years, the average annual volume of planning applications submitted for conver-
refurbishment an sion, finishing, and refurbishment work has amounted to around CHF 12 bn. In the first half of
increasing focus, … 2021 the equivalent figure had already reached CHF 6.6 billion, which equates to a high propor-
tion of 27% of all newly planned construction volumes (Fig. 8). A key driver of this development is
likely to be the trend toward energy-related refurbishment, which is expected to continue in the
longer term despite the rejection of the fully revised CO2 Act by the Swiss electorate. The likeli-
hood is that this will benefit not just the main construction trade, but above all the finishing industry
and construction suppliers that deliver products such as heating solutions, room ventilation regula-
tion technology, photovoltaic equipment, windows, and insulation.
… particularly in A further driver of the conversion trend is likely to be a consequence of the coronavirus crisis. In
rural regions the wake of the pandemic, demand for owner-occupied housing rose, while at the same time the
search radius of many buyers will have widened due to the greater prevalence of home working.
As the supply of newbuild properties is limited, however, many investments are likely to have been
in existing stock, as can currently be observed in certain parts of the northwestern Mittelland and
the Jura region, for example. This effect is even more pronounced in a number of tourist regions,
where the Second Homes Act restricts the supply of newbuild property. To some extent, this is
also reflected in the strong growth of owner-occupied property prices. In a number of regions of
Canton Graubünden, for example, price rises have exceeded 10% over the last 12 months.
Disruptions to supply The scarcity of a number of key construction materials remains the greatest risk factor for the
chains the biggest construction economy. This risk is likely to continue to hover over the industry given that global
current risk supply chains continue to face restrictions and demand has picked up sharply as the post-pan-
demic recovery continues. Moreover, the temporary closure of the huge container port of Ningbo
in China has further exacerbated the situation. According to the survey of the Economic Research
Unit of the Federal Institute of Technology in Zurich (KOF), a majority of construction companies
(58%) reported a shortage of building materials in June 2021. This is now also feeding through
into construction prices, which according to the Federal Statistical Office have recorded a 1.2%
year-on-year rise following almost a decade of stagnation – with the rise being even higher in ar-
eas such as timber construction (Fig. 9). As the situation has recently become even more prob-
lematic, the trend of higher costs and construction delays is likely to continue for now. This pre-
sents building companies with the challenge of passing on these additional costs to avoid further
erosion of what are already low profit margins, despite fierce competition.
Recovery can be As long as there are no widespread closures of building sites over the next few quarters, the per-
expected to slow sistently high order backlog is likely to ensure the continued recovery of the construction economy,
even though the tempo of that recovery should gradually slow. The industry can also draw confi-
dence from the negative interest rate environment, which is set to continue and lead to persis-
tently high demand from investors. The greatest opportunities for the construction trade in the
longer term include not just conversion and refurbishment, but also infrastructure, as there is sig-
nificant need for this in Switzerland, and much of the necessary long-term funding is ring-fenced.
Fig. 8: Conversion work supports demand for building construction Fig. 9: Construction prices rising after years of stagnation
Planned building construction volumes as per planning applications, in CHF mn; Semi-annual construction price index, annualized growth rates (MFD: multi-family
2021: H1 dwellings)
Conversion/refurbishment/finishing Construction trade: total Building construction
14’000 35% 5% Newbuild of MFD with timber Civil engineering
Proportion of total construction volumes (rhs)
30% 4%
12’000
3%
10’000 25%
2%
8’000 20% 1%
6’000 15% 0%
-1%
4’000 10%
-2%
2’000 5%
-3%
0 0% -4%
1995 1998 2001 2004 2007 2010 2013 2016 2019 2004 2006 2008 2010 2012 2014 2016 2018 2020
Source: Baublatt, Credit Suisse Last data point: 06/2021 Source: Swiss Federal Statistical Office, Credit Suisse Last data point: 04/2021
Real Estate Monitor | Q3 2021 9Owner-occupied housing
Low interest phase extended Fig. 10: Mortgage interest rates for different terms
Interest rates for new mortgages, in %
Since inflation should remain below the 1% threshold, we 6% SARON mortgage (1 month)*
Fixed mortgage 5 years
are anticipating a continuation of the negative interest envi- Fixed mortgage 10 years
ronment. As such, there is no reason to expect any rise in 5%
Fixed mortgage 15 years
policy rate until the end of 2022 at the earliest. The interest
4%
rates on SARON mortgages are therefore likely to remain at,
or close to, their lows over the next 12 months. By contrast, 3%
as long as the economic recovery continues, we are expect-
ing fixed mortgage rates to trend slightly higher over the 2%
coming 12 months. As before, this development is likely to
be accompanied by limited upward and downward move- 1%
ments. The historically very low interest rate environment will
0%
therefore remain in place over the next 12 months. 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
* SARON mortgage interest rate from 21.9.2020 on. Earlier historic interest rate:
Flex rollover mortgage (3-month LIBOR).
Source: Credit Suisse Last data point: September 14, 2021
Newbuild activity still too low Fig. 11: Quarterly building permit issuance for owner-occupied
housing
Number of residential units, single-family homes (SFH) and condominiums (CDM)
The volume of building permit issuance for condominiums 7,000 Permits, SFH Permits, CDM
Moving 4-quarter average, SFH Moving 4-quarter average, CDM
and single-family homes has stabilized recently. Over the last
6,000
12 months, 12,017 condominiums and 6,120 single-family
homes were approved. In other words, owner-occupied 5,000
housing construction activity is still at a nadir, despite the
4,000
urge to own residential property still being extremely strong.
Not much is likely to change quickly here given that planning 3,000
applications remain at low levels. While the volume of appli-
2,000
cations for condominiums continues to decline, the volume
of applications for the construction of single-family homes 1,000
has risen only slightly (+5.0%). Given the persistently nega-
0
tive interest rate environment, the focus of construction ac- 2006 2008 2010 2012 2014 2016 2018 2020
tivity is likely to remain in the rental apartment area.
Source: Baublatt, Credit Suisse Last data point: Q2/2021
Price growth accelerates further in owner-occupied housing segment Fig. 12: Residential property price growth, mid-range segment
Annual growth rates; dotted lines: average 2000–2020
As a result of the COVID-19 pandemic, the desire to own Annual growth, single-family homes
10% Annual growth, condominiums
residential property in Switzerland is at a scarcely imaginable Average, single-family homes
8%
level. But as supply is too low, price momentum has gradu- Average, condominiums
ally gathered steam over the last few quarters. The prices of 6%
single-family homes have risen by 6.3% within a year. For 4%
condominiums the price growth has been even stronger,
2%
namely 6.8%. These are the highest growth rates recorded
since 2011/2012. That price growth has not been even 0%
higher is likely to be primarily due to Switzerland’s rigorous -2%
regulatory financing requirements. These will limit upside -4%
price potential in the future too.
-6%
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
Source: Wüest Partner Last data point: Q2/2021
10 Real Estate Monitor | Q3 2021Rental apartments
Demand for rental apartments immune to crisis Fig. 13: Net migration of foreign residential population
Moves to/from Switzerland and net migration: moving 12-month totals
160,000
Net migration was high in 2020, despite a decline in people
moving to Switzerland, as fewer people emigrated. In 2021 140,000
too, net migration will support the rental apartment market. 120,000
By July, the net immigration of foreigners was some 5.1% Immigration Emigration Net migration*
higher than in the pre-crisis year of 2019. Although net mi- 100,000
gration is likely to weaken compared to the strong previous 80,000
year once a high level of Swiss emigration is taken into ac- 60,000
count, the figure is unlikely to be down on that of 2019.
Furthermore, domestic demand for rental apartments can be 40,000
expected to increase significantly on the back of the eco- 20,000
nomic recovery. According to the State Secretariat for Eco-
0
nomic Affairs, following a temporary slump, consumer senti- 2010 2012 2014 2016 2018 2020
ment in July 2021 was significantly higher than its pre-crisis
level.
* Net migration, not taking into account registry corrections
Source: State Secretariat for Migration, Credit Suisse Last data point: 07/2021
Accelerated trend reversal in rental apartment construction Fig. 14: Rental apartment building permits and planning applications
Number of housing units, moving 12-month total
Rental apartment construction activity has been increasing Rental apartment planning applications Rental apartment construction permits
35,000
steadily for years – driven first by the additional demand
coming from immigrants, and later by the wave of investor 30,000
interest due to interest rate developments. But a combina-
25,000
tion of higher market risks and declining initial yields has
now resulted in real estate developers becoming more cir- 20,000
cumspect. Since peaking three years ago, the volume of 15,000
planning applications for new apartments has declined by
around a quarter. As a consequence, construction activity is 10,000
likely to be scaled back significantly over the next two to 5,000
three years. A similar outcome is also suggested by the
0
number of apartments approved for construction, which has 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020
declined by 11% over the last 12 months.
Source: Baublatt, Credit Suisse Last data point: 06/2021
Pandemic stimulates re-evaluation of housing situation Fig. 15: Supply rate and time-on-market of rental apartments
Supply rate as % of existing housing stock, time-on-market in number of days
A significantly higher number of rental apartments have been
7% 70
advertised since the lockdown-related slump in the second Supply rate
quarter of 2020. Over the last four quarters, the supply rate 6% Supply rate, 4Q average* 60
has worked out at a high average of 6.1%. This increase is Time-on-market, 4Q average* (rhs)
5% 50
largely attributable to the large and medium-sized centers.
Many households are likely to have been prompted by the 4% 40
pandemic to re-evaluate their living situations and to move to
3% 30
a larger apartment outside of the city, for example, or relin-
quish their pied-à-terre. The positive overall development of 2% 20
demand is evident from the average time-on-market of 1% 10
apartments, which has fallen sharply over the last few quar-
ters. As a consequence, the downward pressure on rents 0% 0
2006 2008 2010 2012 2014 2016 2018 2020
can be expected to slacken over the coming quarters.
* Moving average over four quarters
Source: Meta-Sys AG, Credit Suisse Last data point: Q2/2021
Real Estate Monitor | Q3 2021 11Commercial real estate
Slow but steady return to the office Fig. 16: Swiss mobility data
Moving seven-day average; 0 = reference value prior to pandemic
The easing of the coronavirus containment measures and Retail and leisure Shops for everyday needs
above all the repeal of mandatory home working have re- Stations and other public transport stops Workplaces
40Residential
sulted in a slow but steady return to the workplace, including
the office. Before the summer vacation period, the number 20
of workers at their office workstations was still 11% below 0
its pre-pandemic figure. After the expected dip in the sum- -20
mer vacation period, the figure was still 12% lower at the
-40
end of August. Nothing is likely to change here in the short
term given the ongoing social distancing rules in place. And -60
as an increasing number of companies will allow their em- -80
ployees to work from home – at least in part – after COVID-
-100
19 too, commuter movements going forward will remain 02/2020 05/2020 08/2020 11/2020 02/2021 05/2021 08/2021
lower than before the pandemic.
Source: Google Last data point: September 2,2021
Office space planning responds to weak demand Fig. 17: Planned expansion of office space
Building permits and planning applications, moving 12-month total, in CHF mn.
4,000
Over the last 12 months, the investment volume of building
permit issuance for office space amounted to some CHF 3,500
1,565 mn. This is well below the most recent high of last
3,000
November, and as much as 19% below the long-term aver-
age since 1995. Fewer offices are being planned, and in the 2,500
office property markets of the large centers in particular. 2,000
This decline is welcome, especially as demand is likely to re-
1,500
main subdued due to the increased prevalence of home
working. However, the anticipated decline in office space 1,000
Building permits
production will only impact on the supply of space in the me- 500 Planning applications
dium term, hence there is a likelihood of rising vacancies Building permits, average
0
and declining rents over the coming years. 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 2019 2021
Source: Baublatt, Credit Suisse Last data point: 06/2021
Retail sales growth surprisingly strong Fig. 18: Development of retail sales
Nominal growth of retail sales in a year-on-year comparison*
20%
In the first seven months of the year, retail sales recorded a 2018 2019 2020 2021*
15%
year-on-year rise of 4.3%. Whereas the food segment rec-
10%
orded a rise of just 1.1%, the non-food segment enjoyed
5%
strong growth of 8.1%. This is at least partly explained by
0%
catch-up effects. Accordingly, the clothing and shoes seg-
-5%
ment busines also performed strongly this year, rising 7.2% Non-Food
-10%
(2020: -15.5%). Another positive factor is that “shopping
-15%
tourism” has yet to get back to pre-crisis levels. The current
-20%
growth is deceptive, however, as these shifts in consumer
Food/near-food
Personal care
Household and
Leisure
Total
Non-food
electronics
auto accessories
Clothing/shoes
Consumer
and health
DIY/garden/
behavior are unlikely to persist after COVID-19. An addi-
living
tional headache for bricks-and-mortar retailers is that the
majority of sales lost to online traders during the pandemic
are unlikely to be regained.
* Seasonally and number-of-sales-days adjusted, 2018–2020: Jan.–Dec.; 2021:
Jan.–Jul
Source: GfK, Credit Suisse Last data point: 07/2021
12 Real Estate Monitor | Q3 2021Real estate investments
Real estate yields declining, but still attractive Fig. 19: Yield premiums of real estate investments
Distribution yields compared to 10-year CHF government bonds, in bps (lhs)
700 Swiss benchmark bond, 10 years 7%
With their relatively attractive and stable yields, real estate Yield difference vis-à-vis real estate shares
investments continue to be sought after by investors. That 600 Yield difference vis-à-vis real estate funds
Yield difference vis-à-vis direct residential investments (net cashflow)
6%
said, the yield premium over government bonds has declined 500 5%
slightly over the last few quarters. On the one hand, the
400 4%
yields on Confederation bonds have recovered slightly, even
if they are still in negative territory. On the other hand, the 300 3%
downward pressure on real estate yields is persisting – par- 200 2%
ticularly in the case of real estate funds, which have enjoyed
100 1%
strong price rises in recent months. However, valuation
gains also need to be taken into consideration alongside dis- 0 0%
tribution/cashflow yields. For the time being, the upward po- -100 -1%
tential of direct real estate investments such as apartment
-200 -2%
blocks is unlikely to have run its course. 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020
Historical performance data and financial market scenarios are not a reliable indicator
of future results.
Source: Datastream, IAZI, Credit Suisse Last data point: 08/2021
Indirect real estate investments remain on growth trajectory Fig. 20: Total performance of indirect real estate investments
Index: January 1, 2016 = 100
SXI Real Estate Funds SXI Real Estate Shares
Swiss real estate funds, which once again proved their de- 200 Swiss Performance Index MSCI World Real Estate
Performance
2021
fensive qualities during the coronavirus crisis, managed to MSCI World: Office REIT MSCI World: Retail REIT
180 +15.3%
record a further rise this year (+7.1%). A slight upward trend +4.5%
is also apparent for real estate shares (+4.5%), although 160 +26.6%
+7.1%
these have lagged well behind the broad SPI equity index 140
(+15.3%) once again in 2021. A strong recovery trend is +16.1%
120
evident for real estate investments globally. This has been
most pronounced in the segments that were little affected by 100
+20.7%
the pandemic, namely residential (+40.6%) and indus- 80
trial/logistics real estate (+28.0%), whereas the recovery of
60
Real Estate Investment Trusts (REITs) specializing in hotel,
40
office, and retail property has been weaker, with valuations 01/2016 01/2017 01/2018 01/2019 01/2020 01/2021
yet to get back to pre-crisis levels here.
Historical performance data and financial market scenarios are not a reliable indicator
of future results.
Source: Datastream, Credit Suisse Last data point: September 22,2021
Residential real estate funds buoyant Fig. 21: Premiums of real estate funds and real estate shares
As % of net asset value, excluding mixed real estate funds
60%
The defensive characteristics of real estate funds and the
negative interest rate environment, the end of which is not 50%
yet in sight, have resulted in an even stronger investor inter- 40%
est in funds focusing on the residential segment. Despite a 30%
number of capital increases, premiums here have at times
20%
risen to more than 50%. The valuations of these funds are
therefore extremely high, even taking into account a long- 10%
term horizon. The premiums of commercial real estate funds 0%
(29.8%) have likewise reached pre-crisis levels, but still lag -10%
well behind those of residential real estate funds. Residential/commercial difference Commercial real estate funds
-20%
Residential real estate funds Real estate shares
-30%
2009 2011 2013 2015 2017 2019 2021
Historical performance data and financial market scenarios are not a reliable indicator
of future results.
Source: Datastream, Credit Suisse Last data point: 08/2021
Real Estate Monitor | Q3 2021 13Important Information Private Equity (hereafter “PE”) means private equity capital investment in com-
panies that are not traded publicly (i.e. are not listed on a stock exchange),
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Private Equity
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